China Life Insurance Essay ⋆ Business Essay Examples ⋆ EssayEmpire

China Life Insurance Company Limited (“China Life”) is China’s largest life insurance company and the second-largest by market value globally (US$129 billion; RMB 1,032 billion). With a market share of approximately 40 percent with less than 4 percent of the population insured, China Life—and the China insurance market in general—faces substantial growth opportunities. Market liberalization and the consequent entry of the world’s largest players represent a considerable challenge, with China Life’s future success dependent upon its ability to adapt to the new and dynamic global environment.

China Life was established in Beijing on June 30, 2003, and was listed in New York and Hong Kong in December 2003. In January 2007 the company listed on the Shanghai Stock Exchange, drawing bids for 49 times the volume of stock on offer. The company operates primarily in China and employs approximately 76,000 people. The product mix includes life insurance, annuity products, and accident and health insurance for both individuals and groups.

In 2007 China Life achieved a profit result of US$4.85 billion (RMB 38.9 billion) on revenues of US$23.9 billion (RMB 191.4 billion), an annual increase of 94.8 percent and 29.9 percent, respectively. In 2007 insurance premiums rose by 12.7 percent to US$13.9 billion (RMB 111.4 billion), while net investment income increased 68 percent to US$5.5 billion (RMB 44.0 billion), largely due to rapidly appreciating stock market investments. The company’s solvency margin—at 5.25 times the regulatory requirement in December 2007— reflects the company’s current financial strength.

China Life maintains a strong leadership position in China with a market share in 2007 of 39.7 percent (2006, 45.3 percent), comprising 93 million individual policies. China Life is also China’s largest institutional investor with assets of almost US$125 billion (RMB 1,000 billion) under management. In 2007 Chinese insurance companies were granted the right to invest up to 15 percent of their assets overseas.

In recent years, China Life has maintained its dominant position through scale (specifically, its technical infrastructure and marketing channels) and its strong reputation in a community whose culture has a strong aversion to issues surrounding mortality. China Life’s distribution network in China includes more than 3,600 branches, 12,000 field offices, 90,000 banc assurance outlets (financial intermediaries), and 650,000 sales agents.

China Life’s history will be sharply delineated by current industry liberalization as China’s government seeks to regulate the participation of foreign insurance groups and protect the interests of domestic participants. China Life recognizes that, in order to become globally competitive, it needs to raise the level of its operational management and professionalism at all levels and in all areas. The company has indicated that it will continue to seek strategic foreign investors from whom it can learn advanced investment management systems and risk management, enhance the company’s corporate governance, and develop highly competitive sales and marketing strategies and practices.

While the company’s current strategy calls for strengthening and increasing its 90,000 banc assurance outlets, industry experts question the ongoing support of these financial intermediaries. In July 2008 four domestic banks applied to invest in China’s insurance industry. China Life’s ability to develop products tailored to their financial partners’ specific needs is critical to maintaining the strength of this valuable marketing channel.

One of China Life’s greatest strategic assets is its brand which, in spite of the poor industry penetration of the market (at just 4 percent) still enjoys 92 percent recognition. While this provides considerable leverage in a rapidly developing insurance market, differentiation of its product offerings will be crucial to maintaining a substantial market share into the future.

China Life’s investment and risk management skills may also be tested with the volatile domestic stock market. While the company has realized significant profits from stock market investments in recent times, 2008 has seen sharp declines across the board. China Life’s future depends on its ability to adapt to the challenges of its new, increasingly dynamic and competitive global environment.

Note: There is no business relationship between China Life Insurance Company in Mainland China and China Life Insurance Co. Ltd. in Taiwan.

Bibliography:

Stephan Binder, Tab Bowers, and Winston Yung, “Selling Life Insurance to China,” The McKinsey Quarterly (2004 Special Edition);
Olivia Chung, “China’s Insurers Look To Looser Shackles,” Asia Times Online, www.atimes.com (cited March 2009);
China Knowledge, “Foreign Strategic Investors for China Life Insurance AMC (HK),” www.chinaknowledge.com (cited September 2008);
Research in China, “China Insurance Industry Report, 2007–2008” (August 2007);
RNCOS Research Solutions, “China Insurance Sector Till 2010” (December 2007).

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